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CONFIDENTIAL 1 AC/JUN 2015/FAR460

UNIVERSITI TEKNOLOGI MARA


FINAL EXAMINATION

COURSE : FINANCIAL ACCOUNTING AND REPORTING 2


COURSE CODE : FAR460
EXAMINATION : JUNE 2015
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of four (4) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper


ii) an Answer Booklet – provided by the Faculty

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO


This examination paper consists of 6 printed pages
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CONFIDENTIAL 2 AC/JUN 2015/FAR460

QUESTION 1

The financial statements of Generation Z Bhd are expected to be authorised for issue on 28
February 2015. The following trial balance relates to Generation Z Bhd at 31 December
2014:

Debit Credit
RM’000 RM’000
Ordinary shares capital 60,000
5% RHB loan note 20,000
Retained earnings as at 1 Jan 2014 38,400
Property at cost (note 1) 25,000
Plant and equipment at cost 67,500
Accumulated depreciation as at 1 Jan 2014:
Property 6,000
Plant and equipment 23,500
Investment property 10,000
Biological asset 10,000
Intangibles as at 1 Jan 2014 (note 2) 20,000
Accumulated amortisation of intangibles as at 1 Jan 2014 6,000
Quoted investments 26,500
Inventory as at 31 Dec 2014 48,000
Trade receivables 40,500
Bank balance 4,500
Trade payables 51,600
Provision for breach of contract 400
Revenues 400,000
Cost of sales 294,000
Additional intangibles (note 2) 6,200
Distribution costs 20,200
Administrative costs 34,200
Ordinary dividend paid 10,000
5% RHB loan note interest paid (six months) 500
Tax paid 400
Investment income 1,200
Tax payable as at 1 Jan 2014 1,400
613,000 613,000

Additional information:

1. On 31 December 2014, a qualified surveyor has valued the property of Generation Z


Bhd at RM48,000,000. It is the policy of the company to adopt the revaluation model
for its property. The non-current assets have not been depreciated for the year ended
31 December 2014. The property had a remaining life of twenty years and is
depreciated using a straight-line method. Plant and equipment is depreciated at 20%
on the reducing balance method. Depreciation on plant and equipment is treated as
part of cost of sales.

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CONFIDENTIAL 3 AC/JUN 2015/FAR460

2. In addition to the intangibles of RM20,000,000 which was capitalised in the previous


years, further costs were incurred on 1 January 2014. The intangibles is amortised at
20% per annum using the straight-line method.

3. The Inland Revenue Board has confirmed that the tax expenses during the year was
RM1,100,000.

4. On 30 October 2014, Generation Z Bhd is being sued by a customer for RM2 million
for breach of contract over a cancelled order. Generation Z Bhd has obtained legal
opinion that there is a 20% chance that Generation Z Bhd will lose the case. Thus,
Generation Z Bhd provided RM400,000 (RM2 million x 20%) and included in the
administrative costs in respect of the claim. An unrecoverable legal costs of defending
the action are estimated at RM100,000.

5. At the end of January 2015, the Chairman of Generation Z Bhd confessed that the
trade receivables has been overstated, of which payments collected from receivables
amounted to RM1,500,000 has been transferred to his own personal account. He
further confessed that 20% of the amount was related to the current year, and the
balance was related to prior years.

Required:

Prepare the following statements in accordance with MFRS 101 Presentation of Financial
Statements and other relevant Malaysian Financial Reporting Standards:

a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 31
December 2014.
(10 marks)

b. Statement of Financial Position as at 31 December 2014.


(Note on Property Plant & Equipment and Statement of Changes in Equity for the
year ended 31 December 2014 are also required)
(20 marks)
(Total: 30 marks)

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CONFIDENTIAL 4 AC/JUN 2015/FAR460

QUESTION 2

Marlimar Bhd was incorporated several years ago and it is involved in manufacturing
activities.

On 1 January 2010, Marlimar Bhd acquired a piece of freehold land and a factory building at
an amount of RM3,000,000. The cost of the land was RM1,000,000. The useful life of the
factory building is 50 years.

On 1 January 2013, renovation was carried out on the factory building. The cost of the
renovation was RM470,000. It is expected to increase the production capacity of Marlimar
Bhd’s operation.

However, on 1 July 2014 an explosion occurred in the factory building due to some technical
problem. Part of the north wing of the factory building was damaged in the explosion. The
management has been informed that the fair value of the factory building as at 1 July 2014
was RM2,130,000.

Required:

a. Discuss why information about the property, plant and equipment is useful to the
investors.
(5 marks)

b. Explain the depreciation method to be used for the factory building.


(5 marks)

c. Determine the carrying amount of the land and the factory building as at 31 December
2012. Assuming the entity adopts the cost model for its subsequent measurement.
(5 marks)

d. Advise the effect on the incurrence of the renovation costs.


(5 marks)

e. Discuss on the subsequent measurement of the factory building as at 1 July 2014.


(5 marks)
(Total: 25 marks)

QUESTION 3

Emas Alex Bhd acquired on 3 January 2012 a license for gold mining activities at a new
found gold mine near a riverbed at Sungai Lembing. Emas Alex Bhd paid RM7,000,000 for
the license. There is no legislation requiring any cleaning up or restoration in the Sungai
Lembing district. However, it is the policy of Emas Alex Bhd to restore the riverbed at the end
of the extraction period which is ten years later. The present value of the estimated
RM2,000,000 restoration cost was RM1,100,000 (7% cost of capital)

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CONFIDENTIAL 5 AC/JUN 2015/FAR460

During the year ended 31 December 2013, three workers were injured while working in the
extraction of the gold ore. The investigation as to the cause of the accident is still in
progress. However, discussion for compensation of RM270,000 has been agreed.

Emas Alex Bhd will be able to recover the amount of the compensation from the insurance
company if payment has been made to the three workers.

Required:

a. Identify the classification of the license acquired by Emas Alex Bhd.


(5 marks)

b. Explain the recognition treatment in relation to the incurrence of restoration expense


and also the incurrence of compensation expense.
(5 marks)

c. Prepare the relevant journal entries for the year ended 31 December 2013.
(5 marks)

d. Advise on the accounting treatment if Emas Alex Bhd able to recover the
compensation.
(5 marks)
(Total: 20 marks)

QUESTION 4

The following information relates to the financial statements of Famous Barr Bhd.

Summarised Statements of Financial Position as at 31 December:

2014 2013
RM’000 RM’000
Assets
Property, plant and equipment 15,100 9,950
Investment property 1,000 300
Intangibles 1,850 1,100
Inventories 5,500 2,600
Trade receivables 1,500 900
Interest receivables 180 250
Tax recoverable 150 nil
Cash and cash equivalents 1,080 850
26,360 15,950
Equity and Liabilities
Ordinary shares capital 11,250 7,750
Reserves 6,010 2,200
10% Loan 2,000 2,000
Environmental provision 3,300 nil
Tax payable nil 1,500
Trade payables 3,800 2,500
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CONFIDENTIAL 6 AC/JUN 2015/FAR460

26,360 15,950

Summarised Statement of Profit or Loss for the year ended 31 December 2014

RM’000
Revenues 54,800
Cost of sales (32,400)
Distribution expenses (7,800)
Administration expenses (8,900)
Interest income 200
Finance costs (1,050)
Income tax expense (650)
Profit for the year 4,200

Statement of Changes in Equity for the year ended 31 December 2014

Ordinary Revaluation Retained


shares reserves profits
RM’000 RM’000 RM’000
Balance as at 1.1.2014 7,750 800 1,400
Comprehensive income 750 4,200
Issue of shares 3,500
Dividend paid (1,140)
Balance as at 31.12.2014 11,250 1,550 4,460

Additional information:

1. During the year ended 31 December 2014, Famous Barr Bhd embarked on an
expansion program and the company acquired a biological asset at a cost of
RM6,500,000. The biological asset was included in the property, plant and equipment.
On 1 July 2014, the company revalued its freehold land at a surplus of RM750,000.

2. On 1 September 2014, the company disposed of an equipment with a carrying amount


of RM1,000,000 for RM750,000. The loss on disposal of equipment and the
depreciation expense of RM1,100,000 were charged to administrative expenses.

3. During the year ended 31 December 2014, a further RM950,000 was spent on
intangibles.

4. There was an additional purchase of investment property.

5. During the year, 2,500,000 ordinary shares were issued. A final dividend was declared
and paid during the year.

Required:

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CONFIDENTIAL 7 AC/JUN 2015/FAR460

a. Prepare a note to reconcile the profit before tax to cash generated from operations.
(10 marks)

b. Compute net cash flows from investing and financing activities of Famous Barr Bhd for
the year ended 31 December 2014.
(10 marks)

c. Evaluate on the investing and financing activities of Famous Barr Bhd.


(5 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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